Correspondent banking has become a critical channel for driving adoption of faster payments at scale. In correspondent banking, a network of bank-to-bank relationships allows individual financial institutions to provide payment services that rely on established connections to various payment networks, including The Clearing House’s RTP® Network and the FedNow Service.
For correspondent banks or corporate credit unions who want to help its network of financial institutions go live with real-time payments, this blog will explore what to consider before getting started.
Educate Your Network of FIs on the Intricacies of FedNow
More than 266 billion real-time transactions took place worldwide in 2023, according to data from PYMNTS.com, which equates to a 42% increase from 2022. Yet, a recent survey of 300 senior banking officials reveals that about two-thirds of U.S. banks have not enrolled in the RTP network or FedNow Service.
This is where a correspondent bank or corporate credit union can help its own network of institutions and empower them to get ahead of the curve. Such initiatives are even easier with support from an experienced payment partner.
With the help of a strategic payments partner, correspondent financial institutions can educate the market about the real-time payment networks and ensure the needs of their member banks or credit unions are considered and addressed as the payments landscape evolves. Together, a correspondent financial institution and a payment partner can inform member institutions about instant payments and how to adapt operations for 24/7/365 transaction processing.
This is exactly what Pidgin has supported Corporate America Credit Union (CACU) with. Pidgin initially partnered with CACU in 2018, as the corporate CU’s goal was to educate its credit unions on faster payments and enable them to conveniently and securely send and receive instant payments directly from their accounts. CACU chose Pidgin because the fintech’s team understood correspondent banking and the nuances of serving a corporate credit union. They recognized that Pidgin could help its network of credit unions to remain relevant and competitive by supporting faster payments for their members.Today, CACU represents 15.5% of the credit unions on The Clearing House’s RTP network that are processing and/or settling RTP transactions. Since 2023, CACU’s RTP volume for its members is $29.2M with over 100,000 transactions. These statistics demonstrate how together, Pidgin and CACU are helpingmore credit unions and their members realize the value of faster payments and modernized payment infrastructure.
Explore Top Use Cases
Not only can a payments partner help educate a correspondent’s member banks and credit unions, but they can also support easier onboarding onto the faster payments networks and help identify the most compelling use cases early on.
For instance, if a correspondent bank wants to use both the FedNow Service and RTP, there are specific onboarding requirements for each, different liquidity management capabilities, and other nuances. Focus on finding a partner that is already plugged into both of those networks to simplify the process for the correspondent institution, as well as the onboarding process for each of its member bank or credit unions.
This will also help support more instant payments use cases.
As an example, some institutions may serve a large segment of customers or members who are employed in the gig economy. A faster payments partner can enable these individuals who work in these jobs to gain access to their wages sooner, rather than wait several business days for funds to settle into their account through traditional methods like ACH. Not only does this improve the individual banking experience, but it also improves liquidity for the bank or credit union that serves them.
Speaking of liquidity, real-time payments can improve the liquidity positions of corporate credit unions or correspondent banks in a few ways. As another example, a B2B portal could allow a group of correspondent banks to send payments instantly to places like car dealerships for financing, realtor agencies for mortgages, as well as other vendors. This allows the bank or credit union to fund these payments in real time so they can hold onto cash longer.
These are just a couple of correspondent use cases for instant payments.
By investing in a strategic payment partner who understands correspondent banking, bankers’ banks and corporate credit unions can help more community financial institutions realize the value of faster payments. Looking to help a network of correspondent financial institutions enable faster payments for end-customers? Let’s connect – Pidgin may be perfectly suited to empower your partners!
